During Super Bowl LII, TV spots for upcoming blockbusters and TV streaming services were a prominent theme. One of them, devised by Netflix (NASDAQ: NFLX), added a buzzworthy twist that we could see more of in the future to promote entertainment events.
Oh no, they didn't!
It had been rumored that The Cloverfield Paradox, the third entry to the Cloverfield franchise -- started by J.J. Abrams of Star Wars: The Force Awakens and Star Trek fame -- was being courted by Netflix. All speculation was laid to rest when the company presented an ad during the Super Bowl with a trailer for the movie. Netflix has advertised movies and shows on broadcast television before, but the big surprise came at the end of the trailer, when it was announced that The Cloverfield Paradox would be available to stream immediately after the big game.
Social media did the rest of the advertising. While we'll have to wait for the next quarterly report in a few months to see how the stunt worked, it was nevertheless a first-of-its-kind marketing feat. There was only one problem: The movie wasn't very good. According to consensus reviews on Rotten Tomatoes, only 18% of critics and 51% of viewers liked the film (as of this writing). That's in stark contrast with the film's predecessors, Cloverfield and 10 Cloverfield Lane, which were both received positively.
As for budget, Netflix apparently paid a hefty $50 million for the sci-fi thriller. Paramount, the studio responsible for its production, was apparently working with a $40 million budget and was worried about a theater-release flop. Thus, Netflix was able to get its hands on the film and use it to lure in Super Bowl viewers.
What's at stake
Traditional pay TV is in slow decline, so it's interesting that NBC -- part of Comcast -- would allow advertising for something that would potentially pull the audience away from an event it paid handsomely for. The only reasoning is probably the millions of dollars NBC took in selling the ad time to Netflix.
It demonstrates the current state of the industry, though. Consumer tastes are changing. Even I'm guilty. Happy seeing that the New England Patriots didn't win championship No. 6, I promptly turned off the postgame coverage to watch Netflix instead. Even though Netflix may have overpaid for a movie that Paramount likely didn't deem worthy of sending to the box office, it succeeded in surprising viewers with both new content and a whole new way of releasing it.
Other entertainment producers and studios are catching on, though, and Netflix is having to up its game in content creation and acquisition. Costs associated with original content will be as high as $8 billion in 2018, up from about $6 billion last year. Management admitted that spending is on the rise due to competition.
It's not just streaming services from Hulu and Amazon. Apple is also working on a TV package, as is Walt Disney, which is launching online sports programming via ESPN Plus this spring and movie and show streaming in 2019. And that doesn't include free ad-supported video like what Facebook and Alphabet's YouTube are churning out.
Netflix management said it believes there is a place for everyone getting in on the crowded streaming bandwagon. The millions of new subscribers reported every quarter are proof there's plenty of growth to go around.
Even so, Netflix is the leader in the industry, and to maintain that lead, producing movies that skip the box office will apparently remain part of the strategy. The Netflix Super Bowl movie surprise was a bold move, and it's likely not the last time we'll see this happen. Hopefully, the next time will feature a better film.
Find out why Netflix is one of the 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. (In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the market!*)
Tom and David just revealed their ten top stock picks for investors to buy right now. Netflix is on the list -- but there are nine others you may be overlooking.
*Stock Advisor returns as of February 5, 2018
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Nicholas Rossolillo owns shares of Alphabet (C shares), Apple, Facebook, and Walt Disney. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, short March 2018 $200 calls on Facebook, and long March 2018 $170 puts on Facebook. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.